Trade Letter of Credit
Trade (or documentary) letters of credit are issued to facilitate commercial trade. Trade LC’s provide the seller of a good or service an assurance that they will be paid for the product they provided. The bank issues the LC on behalf of its client. Unlike standby letters of credit, trade letters of credit are designed to be drawn on. The letter of credit requires the bank to pay the seller of the product when the bank receives documents demonstrating that the product has been shipped or delivered. Once the bank receives these documents the bank is obligated to pay the LC.
Vendors and other suppliers may offer credit arrangements on an ongoing basis to some of their customers. This can provide significant benefits for both parties to the transaction. Vendors can ensure that they retain valued customers and maintain a good working relationship with these companies, while the businesses themselves can manage their financial arrangements more effectively by taking advantage of this added payment flexibility. In a similar way, a trade letter of credit offers vendors an assurance that they will be paid for their materials while providing flexible payment options for the company in question. The classic trade letter of credit definition encompasses a wide range of similar business arrangements; all, however, are designed to promote the delivery of materials by providing a greater degree of security for the vendor or supplier prior to full payment.
CNF Exchange can facilitate the process of finding banks willing to issue trade letters of credit for small businesses and larger companies. The online interface allows businesses to submit funding requirements at no cost, allowing them to identify the most beneficial arrangements in the larger financial marketplace and to manage their commercial transactions more effectively. CNF Exchange can provide the added help businesses need to succeed in today's competitive environment.